When a stock falls behind the herd for no good reason, it tends to draw attention. That’s where Schroders PLC (LSE:SDR)finds itself.
Citi has upgraded the fund manager from 'neutral' to 'buy', arguing that its recent de-rating has gone too far and that the pieces are now in place for a recovery.
The shares have lagged global markets in recent months, even as many of the company’s peers have re-rated higher.
Citi’s analysts think that’s surprising given Schroders’ sensitivity to rising markets. In simple terms, when equities rally, so do its earnings.
The broker also points to improving momentum in fund flows and the prospect of a pick-up in demand for active management, investors once again paying for stockpickers rather than simply tracking indices.
Even fixed-income inflows, typically lower margin, are helping sentiment.
Private markets could be another tailwind. Schroders earns fees on invested rather than committed capital, meaning that as activity in private assets revives, revenues should follow. Citi reckons that the group is “positively geared” to any such recovery.
The downgrade brigade had three main complaints: that Schroders’ valuation looked too rich, that growth had stalled, and that costs had eaten into profits.
None of those arguments holds much water now, says Citi. The shares trade roughly in line with peers, management fee income is forecast to grow briskly over 2025–27, and profits should follow as the cost base is trimmed.
The analysts see about 10% upside to consensus 2026 earnings and have lifted their price target to £4.35.
Citi has been confident for some time that Schroders’ 2027 targets (a cost-income ratio below 70%, £20 billion of new private-market inflows and 5–7% annual net inflows in wealth) were achievable.
First-half results showed progress on its internal overhaul and on the profitability of Schroders Personal Wealth. Third-quarter markets have helped, too.
For the upcoming third-quarter update, Citi expects assets under management of £703 billion, about 3% ahead of consensus, helped by stronger markets and better-than-expected inflows.
Those inflows, at £6.1 billion, are ahead of the £2.6 billion the market was looking for, though the mix has tilted towards lower-margin fixed income rather than equities.
All told, the broker has nudged up its earnings forecasts for 2025–30 by an average of 3% and sees scope for further upgrades if sentiment towards active management continues to improve.
After a period of underperformance, Schroders may finally be poised to rejoin the pack.
The shares were down 1.7% at 387p.